Apple to set up Israel development center

Aharon Aharon will head Apple's first ever development center outside of its California headquarters.

Sources inform "Globes" that Apple Inc. (Nasdaq: AAPL) has decided to open a development center in Israel focusing on semiconductors. The decision was taken even before the company entered into talks to acquire Herzliya-based flash storage solutions provider Anobit Ltd..

Apple has hired Aharon Aharon, a veteran player in Israel's high tech industry, to lead the new development center.

Although Apple is a global innovation leader, the company is a relatively small investor in R&D. The producer of the iPad and iPhone invested $2.4 billion in R&D in 2010, which was only 2% of its revenue, much less proportionately than other high-tech companies.

Apple's deployment of R&D activities is in line with this policy and the company has only one technology development center, which is at company headquarters in Cupertino, California. All activities outside of company headquarters revolve around marketing, sales and support. Strategic development is carried out at home. The planned Israel center will therefore be the company's first such center outside of its California headquarters.

Aharon Aharon comes to Apple with a varied background that will assist him in setting up a semiconductors operation for a foreign company. His most high-tech venture was Camero Tech Ltd., which develops Radio Frequency (RF) based imaging systems, and which he founded in 2004 with Amir Beeri. Aharon serves as chairman of Camero Tech. Before that he was chairman of embedded security solutions developer Discretix Inc. and managed their Israel development center. Earlier still he was VP operations at Zoran Corp. (Nasdaq: ZRAN), having begun his career at IBM's Haifa development center where he reached the post of deputy director.

Aharon is scheduled to spend several months at Apple headquarters in Cupertino before returning to Israel to begin activities at the Apple Israel development center. Aharon will begin operations regardless of whether Apple buys an Israeli company, and will begin hiring staff suitable for the US company's planned areas of activity.

Maximum secrecy

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Apple corporate VP R&D Ed Frank is currently visiting Israel. Frank's background is in semiconductors and he has spent most of the last decade in senior positions at Broadcom Corporation (Nasdaq: BRCM), where he has managed communications chips activities and R&D generally. Frank has been meeting with Israeli companies and high tech businesspeople, although the purpose of the visit has probably not been to identify acquisitions.

Apple's strategy over the years has been to have full control over most of the components in its products. Apple's history with chips began in 2008 with the acquisition of P.A. Semi, which today forms the basis for all the company's computers and phones. Having control over its chip components enables Apple to produce whatever it wants while maintaining maximum secrecy and controlling expenditure.

Securing components

The company has a unique strategy that includes securing ahead of time a large volume of electronic components such as memories, communications chips, flow management and the like. Ordering in advance requires large amounts of capital but allows Apple to neutralize seasonal fluctuations in demand and to keep prices from rising. The fruits of the strategy can be seen in Apple's gross profit margin, which is 40.5% of revenue - far higher than that of other hardware companies.

This strategy is what stands behind Apple's desire to acquire Anobit, which develops systems for improving NAND flash memories. Apple spends billions of dollars annually on buying flash memories for the range of products it manufactures. Anobit's memories, which are already inside Apple's products, would result in savings of 10-20% for the computer giant in its purchases of memories. Apple's new CEO Tim Cook, who replaced the late Steve Jobs, has been stressing streamlining the supply chain; setting up an Israel development center sits well with this strategy.

In 2010, Apple made a number of acquisitions, in contrast to previous periods when the company preferred organic growth. In semiconductors, the company acquired swift processors developer Intrinsity, on which it has based its iPad A4 processors. There is something in common between the acquisition of Intrinsity and Apple's interest in Anobit. Both companies have cooperated with Korean giant Samsung, which is waging a fierce IP legal battle with Apple and is its main rival for global hegemony in smartphones and tablets.